Cheryl Abrahams Discusses the Referral Ban Fee

Posted by:

Cheryl Abrahams

The move to ban referral fees within personal injury (PI) claims may not have been popular with some at the time, but as the dust settles on the changes, there is a growing feeling in the PI sector that they will ultimately succeed in driving quality.

Figures recently released by the Claims Management Regulation Unit reveal that the number of registered claims management companies handling personal injury claims fell from 2,435 in March 2012 to 1,700 in June this year. The fact that it is now a regulatory offence to either pay or receive referral fees within PI cases is clearly making an impact. But are the changes for the better and who is set to benefit?

Debate surrounding the move to ban referral fees was particularly heated in the run up to its implementation. In particular, the Legal Services Board held some reservations about the ban and after conducting a detailed consultation, it was concluded that the interests of consumers would be best served by continuing to permit referral fees, but managing their impact in a more transparent way. On the other hand, former justice minister Jonathan Djanogly was quoted saying: “The ‘no-win, no-fee‘ system is pushing us into a compensation culture in which middle men make a tidy profit which the rest of us end up paying for through higher insurance premiums and higher prices.”

Both sides of the dispute put consumers at the heart of the rhetoric. In one respect, there were concerns that access to freedom of choice and justice would be marginalised, due to larger firms circumnavigating the ban by merging with claims management companies and forming an alternative business structure (ABS). The consequence would be PI claims falling into the hands of large companies which operate like factories, employing paralegals or other, less qualified or inexperienced staff, in order to retain a high volume of cases.

Simultaneously, it was argued that this situation would be compounded by smaller PI firms, who rely on claims management firms for work, and have no budget to market themselves, being put out of business. Nevertheless, supporters of the referral fees ban argued that it would help reduce costs and assist in eradicating the extensive touting for claims that has seen some people making claims that they might not otherwise have made and would stop injured victims being treated as a commodity.

While some law firms are forming partnerships with claims management companies, others have formed alliances with insurers as a way of bypassing the ban. For example, insurer Admiral has now secured two ABS joint ventures with firms Lyons Davidson and Cordner Lewis: their BDE Law offering, which incorporates Cordner Lewis’ services will focus on motor claims. Claims firm Minster Law has also recently been acquired by insurer BGL Group, with Ageas having entered into a partnership with PI firm NewLaw Solicitors. These high-level tie-ups are coming to the fore in direct response to this fundamental change in the law.

Despite these early developments, it is not yet possible to say what the ultimate impact of the changes will be. Regardless of the outcome, there is no doubt that claims management firms have contributed to poor perceptions of the PI sector and in this respect, their decline would be welcomed.

Reflecting on the changes, the argument typically made by insurers and accepted by the Government that referral fees helped to drive claims, create a claims culture and eventually pushed up insurance premiums, is persisting. However, the counter argument is that in a world without referral fees, specialist, quality-driven legal services will be transformed into profit-hungry, commoditised services that have little to do with the pursuit of genuine justice. Fortunately, to date it seems that the latter is not happening.

While in the past it is possible that some people made claims that they would not have made otherwise due to the encouragement of claims management companies, it is also highly likely that claimants with more sophisticated claims (for example people with life-changing injuries) requiring specialist legal services, lost their voice among a wave of more minor or standard claims. This is because the claims management company may not have referred to them the most appropriate solicitor for their needs – someone who was used to handling huge volumes of low value work. The sheer volume of claims in the system at any one time meant that the bulk of the work was handled by paralegals at larger, factory-style firms.

Taking all this into account, it is becoming clear that eventually the ban may help drive quality. A decrease in the number of claims management firms hopefully will encourage people who believe they have a genuine claim to research and find the most suitable solicitor for them and their case – ultimately improving the service they receive. Equally, the ban will force PI solicitors to re-examine the service they offer to clients and consider how to market it better.

Cheryl Abrahams is a partner and personal injury expert at Bolt Burdon Kemp.



Back to articles